Push to end carbon tax early

“Their budget is a mess . . . and every Australian is going to pay a heavy price for the possible re-election of Labor,” shadow treasurer Joe Hockey says.
Photo: Stefan Postles

by
Phillip Coorey | Gemma Daley

Business stepped up calls for the government to move straight to a floating price on carbon, saying a collapse in the European price has highlighted the disadvantage Australian industry faces by paying a fixed price of $23 or more per tonne until 2015.

With events in Europe threatening to worsen the budget deficit for 2015-16 alone by $6 billion, moving to a floating price earlier, however, would blow an even bigger hole in the federal budget.

The collapse in the European price, caused by the European Parliament blocking a push to prop up the local ­carbon market, was seized on by the federal opposition as another reason to abolish the carbon tax.

“Their budget is a mess . . . and every Australian is going to pay a heavy price for the possible re-election of Labor," said shadow treasurer
Joe Hockey
.

In a speech laying out the Coalition’s “direct action’’ policy to be delivered to the Australian National University on Thursday, opposition climate change spokesman
Greg Hunt
will recommit an Abbott government to the ambition of abolishing the carbon tax in six months.

“We will immediately move to abolish the carbon tax and hope to have this removed within six months if we are elected,’’ he will say.

The government shrugged off the news from Europe and said it would press ahead with plans to link the Australian carbon price to the European price once the scheme switches from a fixed price of around $25 a tonne to an emissions trading scheme in 2015.

Labor amended carbon tax last year

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It said it was too early to predict the budgetary impact two years hence but new estimates would be contained in the May budget.

Last year, the government amended its carbon tax to remove a $15 floor price that would have applied once the scheme became an ETS in 2015. Instead it linked it to Europe’s Emissions Trading Scheme from 2015.

To win the support of the Greens, it restricted the purchase of cheap ­overseas permits from developing countries.

Moving to a lower than expected price in 2015 had ramifications for the budget because the forecast revenue from the carbon price had been budgeted to fund household assistance and compensation.

The latest situation arose after the European Parliament rejected by 334 votes to 315 a proposal to postpone the sale of 900 million permits. Had the proposal been adopted, there were predictions the European carbon price could have risen to as high as $12.

Instead, it fell by almost half to $3.23 and could go as low as $1.25.

The budget estimates that the ­carbon price for 2015-16 will be $29 a tonne, raising an estimated $6.7 billion in cash receipts. Based on an assumed price of $4, only about $1 billion would be raised instead.

The market forecast for the European carbon price for July, 2015 is $3.46 a tonne, meaning just $800 million would be raised, leaving a revenue shortfall of almost $6 billion.

Change to a floating price on track

Prime Minister
Julia Gillard
said there would be no change to the plans to transition from a fixed price to a floating price in 2015.

“We are doing what we said we would when we legislated for carbon pricing,’’ she said.

“It shows how much Australia will gain by immediately abolishing the fixed carbon tax and moving straight away to emissions trading linked to low European prices,’’ he said.

“Linking internationally and abolishing the fixed price carbon tax now would cut the carbon price by 80 per cent to $4, reducing electricity prices by more than ¢1.5 per kilowatt hour and taking pressure off trade-exposed industries and households.’’

Business Council of Australia president
Tony Shepherd
concurred, saying the current price disparity between Europe and Australia was “ridiculous’’.

“The BCA does now have an agreed policy that we need to move to carbon pricing but we don’t need to move ahead of our trade competitors,’’ he said.

Impact too hard to predict: Combet

Climate Change Minister
Greg Combet
said the decision of the European Parliament was not final and it was too early to start predicting what the budget impact may be because it was two years away “and a lot of things can happen between now and then’’.

“The European Union is very determined to tackle global greenhouse gas emissions. This was just one proposal of a number that they are considering to support their emissions trading scheme so it will now be considered further by the Parliament’s environment committee in Europe,’’ he said.

“We will continue with our plans to link with the European emissions trading scheme from July 1, 2015, which is still over two years away, but this year’s budget, as is usual practice by Treasury, will include a revised forecast for a ­carbon price in 2015-16 in Australia.’’

Experts said the incentive for polluters to cut emissions would not be as pronounced with a far lower price.

“If the European price stays at these levels, the Australian price needs to be decoupled from the EU trading system by way of a price floor, or you need to set a more ambitious target of 15 to 25 per cent instead of the current 5 per cent [emissions reduction by 2020]’’ said Frank Jotzo, director of the Centre for Climate Economics and Policy at the Australian National University .

“If the current settings are retained, firms will have no problem with the emissions trading scheme because their price of complying with it will be very low."

Greens leader
Christine Milne
said she was disappointed at the EU Parliament vote.

Coalition to outline direct action policy

“We do note, however, this is just one decision, and there is still two years before trading commences in Australia. Given that many influential EU nations including the UK, Germany and France support back-loading, we remain hopeful the EU will still take steps to ensure their carbon price recovers to an effective level,’’ she said.

In his speech to the ANU, Mr Hunt will spruik the Coalition’s direct action policy, which will pay polluters in return for reducing emissions. It will use a reverse auction system to buy the lowest cost per tonne of abatement.

“You could call it a carbon buyback,’’ he said.

Mr Hunt said the cost would be capped at $1.55 billion over the first three years and funds only allocated when emissions were reduced.

“In short, it is a contract for delivery,’’ he said.

The policy would start on July 1, 2014, and details finalised with a white paper process initiated 30 days after the ­election.